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September 20, 2014
$24 Trillion Calls for Climate Policy
    by Robert Kropp

In advance of next week's climate summit at the United Nations, a group of institutional investment organizations representing 348 investors and $24 trillion under management call for climate policies that encourage clean energy investment. First in a two-part series.

The next international climate conference is scheduled for Paris in December, 2015. However, perhaps mindful of the track record of dismal failures in past negotiations, UN Secretary-General Ban Ki-moon has organized a summit of world leaders at the organization's New York headquarters, to be held next week. Climate activists also plan a massive rally in New York tomorrow, and associates of the Occupy movement intend to disrupt Wall Street activities on Monday.

In January, when Ceres hosted an Investor Summit on Climate Risk at the UN, Christiana Figueres, Executive Director of the UN Framework Convention on Climate Change, told reporters, “Policy at the international level is inevitable,” and added that governments are stepping up their efforts to make the necessary reforms, even ahead of the 2015 deadline for doing so established during the most recent climate conference held in Warsaw in 2013.

Despite the fact that 348 institutional investors representing $25 trillion have signed the Global Investor Statement on Climate Change, calling for appropriate government action to accelerate low carbon investment, such optimism seemed noticeably absent during a press briefing held on Thursday. Coordinated by four global investor groups on climate change—the Investor Network on Climate Risk (INCR), the Institutional Investors Group on Climate Change (IIGCC), the Investor Group on Climate Change (IGCC), and the Asia Investor Group on Climate Change (AIGCC)—the briefing featured speakers who repeatedly underscored the urgency of government action.

“We're not doing enough right now,” David Pitt-Watson, Chair of the UN Environment Programme Finance Initiative (UNEP FI), said. “Despite the progress that has been made...governments need to act now if we are going to solve this problem. We need stable, meaningful prices on carbon. We need elimination of subsidies on carbon. And we need to regulate the finance industry so it can do its proper job, which is to take our savings and invest them profitably in development that is sustainable.”

Anne Simpson, Director of Global Governance for California Public Employees’ Retirement System (CalPERS), addressed the evolving nature of the concept of fiduciary duty, which many institutional investors have claimed as justification for avoiding what they perceive to be risky low carbon investments.

“Thinking about the risks and opportunities that climate change pose...there's a market failure that needs to be addressed,” Simpson said. “Carbon is not priced and subsidies are distorting investment positions. If we don't get the market aligned with our fiduciary responsibilities, we won't capitalize the investment that's needed into new opportunities like the Clean Trillion that have been identified.”

According to the International Energy Agency (IEA), $36 trillion in global investment in clean energy will be required by 2050, a total which averages out to $1 trillion per year until then. At the Investor Summit in January, Ceres released a report detailing ways in which institutional investors can help meet that goal.

“Capital markets have the capital to finance a transition to a low carbon economy,” Frank Pegan, Chair of the IGCC, said at the press briefing. “A carbon price will change the capital markets' ability to go from short-term considerations to long-term sustainable outcomes, both for investors and the citizens of this world.”

“Provided the risk and reward criteria which pension funds, insurance companies and so on will require meet our normal objectives, low carbon transformation investments could provide excellent long-term investment opportunities for institutional investors,” Donald MacDonald, Chair of the IIGCC, added.

However, “We can no longer rely on our engagement with policymakers to stimulate the speed of change that we need in order to protect the financial returns of our portfolios,” Faith Ward, Chief Responsible Investment and Risk Officer, Environment Agency Pension Fund (EAPF), warned. “Policymakers need to act now. Delay is not an option.”

Perhaps the most sobering assessment came from Assaad Razzouk, Group Chief Executive of Sindicatum Sustainable Resources, a Singapore-based firm that both invests in and operates clean energy projects.

“We're very much on the front lines of climate change,” Razzouk said. “We see China decaying with its ecosystem permanently impaired. We see India suffering from sea level rise, coastal erosion, land loss, precipitation decline, and droughts. We see major cities like Bangkok and Jakarta at risk of not existing in 30 years.”

“Asia is in the process of roasting the planet,” he continued, “because Asia is in the process of building some 1,000 coal fired power plants. The only reason these 1,000 coal fired power plants can come on stream is because of the global capital markets and the lack of a carbon price, in addition to the the fact that fossil fuel subsidies are absolutely rampant in Asia, to the tune of approximately a trillion dollars a year.”

Noting how few Asian names appear on the Statement on Climate Change, Razzouk concluded, “Engagement is incredibly weak from Asia.”

The Global Investor Coalition on Climate Change groups also launched the Low Carbon Investment (LCI) Registry, which provides examples of global low carbon investments made by institutional investors.

Next: Civil society groups urge UN Secretary-General to emphasize public funding at Climate Summit, while social movements denounce “the corporate take-over” of the Summit.


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